US mortgage terminology

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This page aims to explain specific US mortgage terminology to readers.

[edit] Mortgage types

  • Adjustable rate mortgage or ARM - A mortgage where the interest rate adjusts relative to a specified index + margin. Eg. COFI, LIBOR etc.
  • Hybrid ARM - An adjustable rate mortgage wher the initial 'start' rate is fixed for some portion of time (3,5,7, or 10 years) thereafter the interest rate adjusts (yearly or bi-annually) based on the sum of a specified index + margin. Eg. 2/28 Arm, 3/1 Arm, 5/1 Arm, 7/1 Arm, 10/1 Arm, 3/6month arm, etc...
  • Fixed rate mortgage or FRM - A mortgage where the interest rate and payment are fixed for the term of the loan.
  • Negative amortization mortgage - where the payment may be less than the monthly acrued interest, and the outstanding interest is capitalized monthly into the loan balance.
  • Balloon payment mortgage
  • Interest only mortgage

[edit] Terminology

  • Yield spread premium
  • A par rate is the lowest interest rate a borrower qualifies for, given by the lender.

[edit] See also


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